Correlation Between Transamerica Emerging and Ultrashort Small-cap

Can any of the company-specific risk be diversified away by investing in both Transamerica Emerging and Ultrashort Small-cap at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Transamerica Emerging and Ultrashort Small-cap into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Transamerica Emerging Markets and Ultrashort Small Cap Profund, you can compare the effects of market volatilities on Transamerica Emerging and Ultrashort Small-cap and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Transamerica Emerging with a short position of Ultrashort Small-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Transamerica Emerging and Ultrashort Small-cap.

Diversification Opportunities for Transamerica Emerging and Ultrashort Small-cap

0.54

Correlation Coefficient

Transamerica Emerging  Ultrashort Small-cap

Very weak diversification

The 3 months correlation between Transamerica and Ultrashort is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Transamerica Emerging Markets and Ultrashort Small Cap Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultrashort Small Cap and Transamerica Emerging is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Transamerica Emerging Markets are associated (or correlated) with Ultrashort Small-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ultrashort Small Cap has no effect on the direction of Transamerica Emerging i.e., Transamerica Emerging and Ultrashort Small-cap go up and down completely randomly.

Pair Corralation between Transamerica Emerging and Ultrashort Small-cap

Assuming the 90 days horizon Transamerica Emerging Markets is expected to under-perform the Ultrashort Small-cap. But the mutual fund apears to be less risky and, when comparing its historical volatility, Transamerica Emerging Markets is 4.23 times less risky than Ultrashort Small-cap. The mutual fund trades about -0.13 of its potential returns per unit of risk. The Ultrashort Small Cap Profund is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  4,116  in Ultrashort Small Cap Profund on October 4, 2024 and sell it today you would earn a total of  508.00  from holding Ultrashort Small Cap Profund or generate 12.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Transamerica Emerging Markets  vs.  Ultrashort Small Cap Profund

Transamerica Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transamerica Emerging Markets has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward-looking indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Ultrashort Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ultrashort Small Cap Profund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Ultrashort Small-cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Transamerica Emerging and Ultrashort Small-cap

The main advantage of trading using opposite Transamerica Emerging and Ultrashort Small-cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Transamerica Emerging position performs unexpectedly, Ultrashort Small-cap can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Ultrashort Small-cap will offset losses from the drop in Ultrashort Small-cap's long position.

The idea behind Transamerica Emerging Markets and Ultrashort Small Cap Profund pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.